Bally Total Fitness Buys 13 Gold's Gyms

The deal represent's Bally's first entry into Portland. This is the second time an acquisition has taken Gold's Gyms from the city.

PORTLAND, Ore.-When 24 Hour Fitness bought the seven Portland Gold's Gyms in 1997, Nautilus Plus-a respected Portland player-kept the Gold's name in town by converting its facilities to the Gold's Gym brand. Now, however, Nautilus has sold its 13 clubs to Bally Total Fitness, leaving Portland without a Gold's Gym.

The Portland deal is reminiscent of Bally's 1999 acquisition of the George Brown fitness centers in Fresno and the 1998 acquisition of the Pinnacle Fitness and Gorilla Sports club chains in San Francisco/Oakland. In all of these acquisitions, Bally established a prominent position immediately by buying a large group of clubs.

Bally officials see the Portland acquisition as a major step in its continued growth. "The Portland market is the 23rd largest market in terms of metropolitan areas," explained Dave Southern, Bally's vice president of public relations and investor relations, "and it's the largest market in which we didn't have a presence."

Naturally, Gold's Gym officials were less enthusiastic. Kirk Galiani, CEO and president of Gold's Gym International (GGI), put it bluntly: "We were not happy about it."

In fact, Gold's Gym litigated over the transaction. According to Galiani, the Gold's Gym franchise agreements grant a five-year territory; operators who want to transfer the territory before that five years expires must receive approval from GGI. Since GGI wouldn't have approved of Bally as a transferee, a settlement needed to be reached.

"We received a significant sum to allow the transaction to go forward," Galiani said. He added that someone has already contacted GGI about bringing the Gold's brand back to Portland.

Despite the litigation, Galiani pointed out that he bore no hard feelings toward Nautilus. As part of the team that took over Gold's in 1999, he believes that Nautilus and Bally were in discussions before the new Gold's regime entered the picture. "Jack's not a bad person," Galiani said, referring to Jack Garrison, Nautilus' president. "It was just a bad situation for everybody. If we had bought Gold's Gym International earlier, there may have been a chance to bring him on board with us."

Likewise, Garrison had kind things to say about Galiani and the rest of the GGI team. "They are some great people," he offered. "The timing, good or bad, was the best thing for our company and staff. There is nothing wrong with Gold's."

In its settlement with Gold's Gym, Nautilus paid off what was left in licensing fees, Garrison claimed. He added that due diligence with Bally took a year and the acquisition itself was a stock transaction that benefited Nautilus employees, who, thanks to the launch of an Employee Stock Ownership Program (ESOP) in 1996, owned 40 percent of the stock in Nautilus Plus.

Since employees had an ownership stake in Nautilus, they took part in the transaction decision and received Bally stock through the acquisition. Garrison-who plans to enjoy retirement with his wife, with whom he ran Nautilus-sees this as a plus for Bally and his staff.

"That continues the motivation to continue doing good things," he noted.

And Bally expects good things. Bill Fanelli, Bally's senior vice president of operations, said the Portland acquisition has given Bally great clubs in a great market. He pointed out that the Nautilus employees have brought close relationships with the community, the managers have brought new ideas, and the clubs themselves have brought great services, particularly Excel Training, a popular trademarked program for personal trainers and group instructors.

"We are already implementing some of their programs throughout Bally Total Fitness," Fanelli said.

Garrison said that Bally's willingness to implement outside programs, such as Excel, demonstrate the open-mindedness that Lee Hillman and Bally's other top brass have instilled throughout the company. "If they see something that is better, they'll go with it," Garrison noted. "They are not locked into anything. It's impressive that they are eager to learn."

Gold's Gym Awards Exclusive Territorial Rights

LEXINGTON, Ky.-Although Gold's Gym may now be absent in Portland, Ore. (see Bally Total Fitness Buys 13 Gold's Gyms, above), Gold's has come on strong in the South and Midwest. Specifically, Gold's Gym Franchising, a division of Gold's Gym International, has awarded Global Fitness Holdings exclusive development rights in Kentucky, Tennessee and Greater Cincinnati.

Royce Pulliam, Global's chairman, is already converting his seven World Gyms to Gold's Gyms in the three-state region. He plans to operate 10 Gold's Gyms by the end of 2000, and 16 within the next four years. His expansion will bring Gold's to Nashville, Memphis, Cincinnati and Lexington (home of Global's headquarters).

Kirk Galiani, CEO and president of GGI, said Global's management, reputation and financing make it an excellent addition to Gold's. Pulliam said that the unique development deal was one of the reasons he chose to work with Gold's. He favors opening large 40,000-square-foot facilities-the kind that cost $1.5 million to build. These larger clubs take time to open. Since he has exclusive rights in his territory, he doesn't need to worry about a smaller operator throwing up a 12,000-square-foot Gold's Gym facility five miles away to compete with him.

Pulliam claimed that his philosophy of "the bigger, the better" is something he shares with the GGI team. He added that they also share a commitment to member satisfaction, with an emphasis on customer service, clean facilities, state-of-the-art equipment and the freshest programs. "We want people to enjoy where they are long term," Pulliam said. "We want to keep members around. We don't want them for a year, then have them go somewhere else."

Not only is Pulliam pleased with the current state of affairs at GGI, he is also impressed with the aggressive plans Gold's Gym has for the future. He pointed out that the GGI executives want to take their company public in the next 36 months. "I want to be part of that," Pulliam said.